The Straw Purchase Car Dealer Scam Exposed
Everything you ever wanted to know about the "Straw Purchase Car Dealer Scam" but didn't know who to ask.
All About the Straw Purchase Scam:
- Definition of a "Straw Purchase" related to a car dealership.
- How the "Straw Purchase Scam" works in a dealership.
- How to avoid the "Straw Purchase Car Dealer Scam".
- What to do if you believe your the victim of the "Straw Purchase Scam".
Definition of a "Straw Purchase" related to a car dealership.
The term straw purchase is normally associated with the purchase of firearm sales. This is when someone buys a firearm for someone whom is not allowed to own one. This could be for a felon or someone who is ineligible for any reason to own one.
When the term Straw Purchase is used in retail automobile sales it is referring to when someone with better credit purchases a new or used vehicle for someone who, because of bad credit, is unable to obtain financing. It's very difficult to detect a straw purchase scam. The best thing you can do is to avoid it all together. Laws differ depending on the state. Some states may consider the straw purchase of a vehicle to be illegal.
How to Obtain a Pre-approved Low Interest Car Loan Online Before Contacting a Car Dealership
How the Straw Purchase Scam works in a car dealership
How the Straw Purchase Scam works is when you go to a car dealership to buy a new or used car. The dealer tells you there is no way you can qualify for a car loan on your own because of your poor credit history. He tells you to find a co-signer that is willing to help you qualify for a car loan.
The dealer continues to tell you by getting a co-signer you will also be able to establish some positive credit history to balance out the bad. At this point, the dealer already knows by looking at your poor credit history, even with a strong co-signer you're never going to get approved for the car loan.
Listening to what the dealer told you, you find a willing co-signer and head back to the dealership.
There are typically three different ways the straw purchase scam can play out from this point:
Scenario Number One - This scenario is normally used if the dealer believes they have a pretty good report with the customer and goes something like this. The dealer explains to you if you both go on the car loan. Your interest rate will be some outrageous number like 20% and your payments will be really high, like $692.00 a month or something. However, if you don't go on the loan and only your co-signer with the great credit buys the car, the interest rate will be 3.9% and your payments will only be $325.00.
Scenario Number Two - The second scenario is used if the dealer is unable to keep you from going on the loan like above or the deal ends up falling through with you on the loan with a good credit co-signer. The dealer waits a few days or even a week or so to call you and tell you your financing fell through.
You must bring the car back immediately and they must charge you for the miles your put on the vehicle. They may even threaten to keep your trade-in. You ask what you can do to keep the car and the dealer tells you there is no way, with your credit history, you can qualify for a car loan. However your co-signer can buy a car if he would like too. He could actually buy the car if it was only in his name.
Now pay close attention what's going on here. The dealer isn't coming right out and telling you to have your co-signer buy the car for you. Doing that may be illegal in some states. However, the dealer is leading you to get the co-signer to just buy the car for you only in his name.
Scenario Number Three - The third scenario of the straw purchase scam is pretty deceitful when done by a car dealership. This is when the co-signer comes to the dealership and is deceived by the dealer's staff during the signing process of all the paperwork.
The dealer may have extra paperwork or several of the same forms written different ways, making excuses; they may need it to get your car deal approved. They rush you and your co-signer through the paperwork and your co-signer confused with all the shuffling of the paperwork, is then misled into signing as the primary signer and all the other paperwork is later sent through the shredder.
You end up finding out a month or so later the dealer never put you on the car loan. Usually when your supposedly co-signer is the one that gets the bill in the mail for the first payment, and your name is nowhere to be found on it. As I said before, laws are different from state to state. It is very difficult to prove you have been duped into a straw purchase scam. The best advice I can give you is to recognize the signs and avoid it in advance.
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How to Avoid The Straw Purchase Car Dealer Scam
Don't let a dealer know more about your credit history than you do. Always get your credit reports and scores before applying for a car loan. Read our section on how to get your credit reports & scores online to learn more.
Only use a car dealership's financing as a last resort. Explore other alternatives to automotive financing such as your personal bank, credit union, or for the best interest rates use online finance institutions. You can find auto loans no matter what your credit history is like.
Visit our guide on how to get low interest car loans online for tips on how get approved for a car loan before contacting a dealership. Having a pre-approved car loan in place will keep you from becoming a victim of the straw purchase scam.
Never sign more than one contract at a time. If you must sign another contract at a car dealership for whatever reason, make absolutely sure you rip up the first contract personally BEFORE signing another one.
Always have both people together at the dealership, at the same time. Agree to meet at the dealership at a certain time and agree with each other not to sign anything until you are both together.
Ask the dealer to show you the approval letter from the lender. It will have both names to show proof that you're both on the loan. If it only shows one name, the person named is the only one approved for the loan.
The Federal Trade Commission's Trade Regulation Rule on Credit Practices requires a Notice to Co-signer form to be included with any motor vehicle retail installment contract or motor vehicle lease contract that has a signer and co-signer involved.
The Notice to Co-Signer form notifies the co-signer they are equally liable for the debt if the signer does not fulfill the responsibilities of the contract. The co-signer should get a copy of this form and read it thoroughly before signing it. After it's signed keep a copy.
Keep and file all copies of any paperwork you've both signed pertaining to the purchase of your car.
Last but not least. If your credit is bad enough to require a co-signer to buy a car you may want to bite the bullet and look at some other alternatives. The worst thing you can do to yourself is stack on more debt by buying a car. Look into buying a cheap used car until you can re-establish your credit and get back on your feet.
What to do if Your the Victim of a Straw Purchase Car Dealer Scam
If you believe you are a victim of the Straw Purchase Scam you can file a complaint with your State's Attorney General's Office and the BBB. This will hopefully make others aware the of the deceitful car dealer and it's employees.
Since the laws vary from state to state you may want to speak with an attorney and find out what legal recourse you have. When it comes down to it. The dealer has a copy of all the required paperwork with only one signer's name on it and it's not your name.
It's very difficult to detect the straw purchase scam and may be a very expensive, long and drawn out process to get a verdict.
Your best defense is to always have both signers at the dealership at the same time, recognize the signs and to avoid the straw purchase car dealer scam at all costs.
Familiarize yourself with the most common Car Dealer Scams committed in dealerships nationwide.
Car Dealer & Salesman Scams Exposed Index